Government needs to spend more to boost economy - Bangko Sentral

MANILA, Philippines - The government needs to spend more to boost the economy, a ranking official of the Bangko Sentral ng Pilipinas (BSP) said yesterday.

The official said that the failure of the government to improve revenues and pump prime the economy would impact on risk aversion.

“Monetary policy can only do so much because we have to work through channels but we cannot do anything about risk aversion,” the official said when asked whether there is a need to do more on the monetary side to help improve the economy and address the problem of risk aversion.

Finance Secretary Margarito Teves reported on Monday that the government’s budget deficit amounted to P153.4 billion during the first six months of this year or a sharp 752.2 percent increase from the P18 billion deficit posted in the same period last year.

The six-month budget gap was P1.7-billion below the P155.1-billion deficit target for the period due to the failure of government agencies to spend more on crucial infrastructure projects that would pump-prime the economy.

For June alone, the National Government incurred a budget deficit of P30.2 billion, reversing the P800 million surplus posted during the same month last year.

The BSP said that news of the government’s fiscal underperformance does not bode well for the economy.

“That’s a dampener for growth and that will impact risk aversion. If that happens, it will have an impact on interest rates,” the official said.

Monetary authorities would adjust monetary policy on the basis of the inflation outlook, the official added. “If it continues to be reasonable and benign, then we will consider our policy settings accordingly.”

Headline inflation in June slowed down to 1.5 percent from its year-ago level of 11.4 percent and from the 3.3 percent recorded in May. The June inflation rate was the lowest rate since April 1987.

The BSP official said the lower inflation in June would impact on inflation in 2010 and 2011.